China is reportedly relaxing measures that restrict money leaving the country

Participants
run from the starting point at Tiananmen Square during the annual
Beijing International Running Festival and Beijing Half Marathon,
in Beijing China April 16, 2017.REUTERS/Jason Lee

China’s central bank, the PBoC, has reportedly relaxed measures
to curb capital outflows from the nation, perhaps encouraged by
signs that the latest US dollar rally may have run its course.

Reuters, citing unnamed banking sources, says
that the decision comes as China’s leaders and financial markets
feel more confident that pressure on the yuan and the country’s
foreign exchange reserves has diminished, thanks largely to a
pullback in the surging US dollar.

As of last week, the PBoC is no longer demanding that banks match
outflows with equal inflows, the source sources. No further
information on whether other restrictions — including the end
destination for funds — was disclosed.

This was done to shore up the Chinese yuan after it fell by 6.5%
against the US dollar in 2016, extending its decline over the
past three years to 13%.

So far this year, the yuan is up by around 1% against the US
dollar.

That rebound has corresponded with a reversal in the level of
China’s FX reserves in recent months, rising back above the $US3
trillion level in both February and March.

This has been as a result of revaluation effects but also a
slowdown in capital outflows from the nation.

While the PBoC appears more relaxed about the potential for
outflows given recent stability in the yuan, it’s still likely to
monitor developments closely.

“Expectations of further yuan depreciation have eased in recent
months, opening a window for authorities to relax recent
measures, but Beijing is not likely to let go totally,” Raymond
Yeung, chief Greater China economist at ANZ, told Reuters.

“The current macro environment obviously favors an easing of the
(rules on) fund flows, but that doesn’t mean that it is going to
have solved the structural issue of the mismatch between the
corporate desire to go out versus the central government’s
centrally-driven approach when they talk about offshore
investment.”